Boardroom Despatches: Sainsbury's cautionary tale

In the first of a new series for 2005 aimed at those at the top of IT or business - or quite possibly both - Rene Carayol revisits the retail sector. He takes a close look at J Sainsbury plc and a recent poor run all too closely aligned with betting the business on IT.

January is traditionally a time for retailers to look back at the end of the previous year, to the all-important quarter that contains the Christmas shopping period. In the UK, Tesco has just released bumper figures again, figures that must make tough reading for the board over at J Sainsbury, once upon a time the country's most successful supermarket chain. And it's Sainsbury's and its IT bet where I want to focus this month.

My main warning is this: it is OK to bet the business on IT - clearly risky but OK; however, any organisation is in trouble when it bets the business on IT and doesn't know it is doing so.

I will get to the lessons the Sainsbury's mess can teach us. First, some background.

Until not too long ago Sainsbury's was run by Sir Peter Davis. He didn't get the top job there in the early 1990s despite being a good executive, left, did well elsewhere (at Reed-Elsevier and the Prudential) and eventually came back to the retailer. It was a homecoming.

Davis then made a big bet - that IT was the key to transform the company. Fair enough but I question whether that risk was fully appreciated. He had bet the business but didn't know it.

So the company embarked on transforming its IT plus its supply chain. It spent at least $1.8bn on that bet with a primary goal of cutting costs. At the centre of the initiative was a deal with Accenture - one of the most successful outsourcers - to create an intermediary body called Swan Infrastructure. Swan was set up so that Sainsbury's and Accenture would split the savings that operating through Swan would allow.

But there were problems from the start. Many of those members of staff who knew how bespoke systems operated, knew the nooks and crannies of the operation, walked out the door. Bye-bye business IT knowledge.

Only remember this wasn't a single overhaul. Linked, though to a lesser degree a matter of technology, was the supply-chain update. New logistics experts came in. Trials were done looking at fundamentals - how to load vans, for example - and more complex software came from Accenture to enable automatic stock replenishment.

But things didn't go well. Costs didn't start to fall. There were firings.

Most organisations can only take so much change at one time. To those of us on the outside it looked like Sainsbury's had bitten off too much. Performance was affected and the new management now running the show are still feeling the fallout, as seen by bare shelves in the past month.

As catalogued in the pages of silicon.com, Swan was brought back in-house a year ago. Accenture is still in the frame but IT is very much back on the books.

The bottom line: Sainsbury's has reported the first losses in its history; new CEO Justin King has been contrite and written off over £250m in IT and other equipment investment to bring more staff back into stores. There are even rumours the company is a clear takeover target.

The CIO until recently was Maggie Miller. I should declare that I know and like Miller. She is one of the best IT practitioners in the country - she is smart and experienced, with a solid track record. But this failure at Sainsbury's was about both business and IT leadership. King is having to unpick the threads of this tangled web of strategy and hope.

The lessons? Never give the keys to your Lamborghini to someone who hasn't driven before. I mostly blame Sainsbury's management for the decline more than Miller. Doing so much at once? You don't test the depth of a river with both feet.

King has been doing an audit, seeing where the company is at now. There really isn't much of a case for the defence, only planning on how to turn around the company.

What can we all learn from this?

IT management and leadership are essential. But when we have a situation where those delivering are IT people, they must still know they can't measure what they do in terms of IT metrics. There should only be a business strategy that IT helps with.

When IT-based transformation is backed by the board, that transformation should get the best people. That rarely happens. In Sainsbury's case Davis delegated too much.

Here are my five tips, applicable to the story of J Sainsbury in recent years but with, I hope, wider resonance:

1. Get the scary people in. With major transformational projects such as this don't look only (or even mostly) at IT people. The individuals I am talking about are business people first and while they might scare the IT department witless, they'll garner more confidence from the board.

2. Build a brand for the IT function. Get its reputation right up there within the organisation. It must say what it does and do what it says.

3. Put collaboration at the centre of the business. It is a stupid business that these days thinks in terms of DIY. This isn't saying outsourcing is always the answer. But know how to partner with suppliers. Don't treat them badly. You need the good ones.

4. Cancel that subscription to Computer Weekly or Computing. Invest in The Economist or silicon.com. Read business pages as well as the technology pages - as you are doing right now.

5. Identify the right role models in the organisation. Who are the staff that speak and act in ways that IT people should replicate? Find them. Make this explicit.

And finally, I welcome your ideas on this issue, specific to Sainsbury's and the retail sector or more broadly. Great companies can be sunk by not approaching this subject seriously.